India could soon witness a fresh wave of banking reforms, as the Finance Ministry and the Reserve Bank of India (RBI) discuss ways to expand and strengthen the sector in line with the country’s long-term growth goals.
According to Bloomberg, early-stage talks are ongoing to allow more players into the banking system. Although no final decision has been made, the focus is on building larger and stronger institutions that can finance India’s development plans.
Key Reforms Being Discussed
Issuing New Banking Licences: India hasn’t issued fresh banking licences since 2014. Now, new licences could be announced soon.
Entry of Large Corporates: Business groups may be permitted to enter the banking space again, with safeguards on ownership and control.
NBFC Conversions: Established Non-Banking Financial Companies (NBFCs), especially in southern India, may be encouraged to convert into full-service banks.
Mergers of Small Banks: The government may also push for merging smaller banks to form stronger, more capable institutions.
Foreign Investment Relaxation: Foreign ownership in public sector banks (currently capped at 20%) could be eased, though the government will keep majority control.
Why These Changes Are Critical
To achieve the goal of becoming a developed economy by 2047, India needs a robust banking sector that can provide long-term credit for infrastructure, manufacturing, and large-scale projects. Currently, bank credit is only about 56% of GDP — far below the required 130%.
Only two Indian banks — SBI and HDFC Bank — are currently among the world’s top 100 by total assets, while Chinese and American banks dominate global rankings.
RBI Governor Confirms Reform Agenda
Speaking to a news channel recently, RBI Governor Sanjay Malhotra confirmed that the central bank is actively reviewing the bank licensing framework. He said the RBI is focused on scaling up banks and ensuring strong, trustworthy institutions to meet the economy’s changing demands.
Market Reaction and Foreign Interest
Despite no official announcement yet, markets responded positively. The Nifty PSU Bank Index ended higher, erasing early losses. Investor sentiment also got a boost from recent foreign investments — notably, Japan’s Sumitomo Mitsui Financial Group’s ₹13,500 crore investment in Yes Bank, marking the largest-ever foreign investment in India’s banking sector.
